by Connor Darrell, Head of Investments
U.S. equity markets finished roughly flat last week as Q2 earnings season kicked into full gear. Small cap stocks continued their recent leadership amid ongoing uncertainty over global trade. Small cap stocks tend to be more domestically focused than their large cap peers, and this has helped insulate them from some of the pressure felt by companies that rely on global commerce as a key revenue driver. International markets managed to creep higher in the aggregate but produced mixed results by region. European stocks have been troubled recently by some signs of slowing economic growth and uncertainty surrounding the ongoing Brexit negotiations.

In the bond market, interest rates ticked higher and the recent trend of curve flattening was bucked for the time being. The 10-year treasury now sits at about 2.89%, still well below the peak of 3.11% that it reached back in May. In an interview with CNBC last week, President Trump commented that he was “not happy about interest rates going up,” but it remains unlikely that the Federal Reserve (which operates independently of government) would adjust its policies based upon the president’s comments.  Part of the president’s concerns stem from the resulting rise in the U.S. dollar, which makes it relatively more expensive for foreign investors to allocate capital to U.S. based projects/companies.

Trump and the Fed
President Trump’s comments regarding the Fed’s interest rate policies caught the attention of some segments of the market but were not significant enough to cause any major disruption. In fact, it is unlikely that anything the president says about Fed policy will be material enough to meaningfully move markets because the Federal Reserve was created as an independent body, designed to function free of political interference.

This was not the first time President Trump has commented on the efficacy of the Fed’s policies, and it likely will not be the last, but we anticipate the Fed to continue its interest rate increases for as long as the economic data suggests that it is prudent.